How much to risk on each trade?
- Thread starter I'mbatman
- Start date
As usual NoDoji you give us some of the most articulate and well though out replies on ET that I have read. I still go back to your closed journal and re-read the wisdom there. I can see you love writing like I do.
There is one area that gets left off the risk per trade discussions that I would like to point out. That area is the frequency of trading. For some one like NoDoji who day trades and has a frequency of 25 to 50 trades a week the amount risks per trade is much smaller than a swing trader like me who averages 6 trades a week.
The common denominator we have is the risk adjusted losses we allow to occur during any period of time. This is the account governor that all traders place in their trading plan. Using it we all get to the same place. In Dojiâs example she allows a max loss of $500 a day as her account governor. This is often arrived as you gain experience from how big your historical drawn downs have been.
In my case because I have a smaller number of average trades during a week than NoDoji I have a different type of governor in my trading plan. From my historical drawdowns I do not allow more than a 7.2% account drawn down from closed trades to occur to my account in a month. If that occurs I shut down for the rest of the month. In the last 48 months it has happened 3 times and was close on another occasion. All of these were my fault not the markets.
What I assume is the worst case and that all active trades are going fail. So on average if I have four trades going. I assume the worst case and the max I allow is a 1.8% position size with no account drawn down. If the account is drawing down then I will reduce my position sizes on future trades.
So the questions you are trying to ask before position sizing are:
- Based on how frequently I trade how fast will I allow my account to be depleted?
- When do I stop trading because Iâm killing my account?
There is one area that gets left off the risk per trade discussions that I would like to point out. That area is the frequency of trading. For some one like NoDoji who day trades and has a frequency of 25 to 50 trades a week the amount risks per trade is much smaller than a swing trader like me who averages 6 trades a week.
The common denominator we have is the risk adjusted losses we allow to occur during any period of time. This is the account governor that all traders place in their trading plan. Using it we all get to the same place. In Dojiâs example she allows a max loss of $500 a day as her account governor. This is often arrived as you gain experience from how big your historical drawn downs have been.
In my case because I have a smaller number of average trades during a week than NoDoji I have a different type of governor in my trading plan. From my historical drawdowns I do not allow more than a 7.2% account drawn down from closed trades to occur to my account in a month. If that occurs I shut down for the rest of the month. In the last 48 months it has happened 3 times and was close on another occasion. All of these were my fault not the markets.
What I assume is the worst case and that all active trades are going fail. So on average if I have four trades going. I assume the worst case and the max I allow is a 1.8% position size with no account drawn down. If the account is drawing down then I will reduce my position sizes on future trades.
So the questions you are trying to ask before position sizing are:
- Based on how frequently I trade how fast will I allow my account to be depleted?
- When do I stop trading because Iâm killing my account?
OP,
A little something my friend above posted awhile back â worth its weight in gold â as is he
RN
http://www.elitetrader.com/vb/showthread.php?s=&threadid=163574
A little something my friend above posted awhile back â worth its weight in gold â as is he
RN
http://www.elitetrader.com/vb/showthread.php?s=&threadid=163574
RN,
Thank you for your kind words. My old retired mine had forgotten about that thread.
It all goes back to a big lesson a student of mine in night school taught me during the 1980s. I was teaching computer science in a programming lab. I had to pair one of my bright students with a student having trouble. I heard another student razing my bright student for being âstuckâ with the slow learner. But her reply has always floated in my head â⦠look Joe, the best way to learn this crap is to tell somebody else what you think you knowâ¦â
That is why I have learned much more from ET than I have contributed. And being a Rabbit with soft fur (not much left) and a thin skin this toughens my in inner self for the humbling lessons I know the markets will continue to toss my way.
Thank you for your kind words. My old retired mine had forgotten about that thread.
It all goes back to a big lesson a student of mine in night school taught me during the 1980s. I was teaching computer science in a programming lab. I had to pair one of my bright students with a student having trouble. I heard another student razing my bright student for being âstuckâ with the slow learner. But her reply has always floated in my head â⦠look Joe, the best way to learn this crap is to tell somebody else what you think you knowâ¦â
That is why I have learned much more from ET than I have contributed. And being a Rabbit with soft fur (not much left) and a thin skin this toughens my in inner self for the humbling lessons I know the markets will continue to toss my way.